The Oxen Report: Market Looking Mixed for Tuesday, Short Sales Aplenty

January 26, 2010

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Hello readers,

This morning the market is looking pretty mixed and unsure of which direction to go. The earnings on the morning were neither great, nor terrible. As a result, we have futures just sitting a bit under at the open. It is hard to say where we are going without much economic indicators. The world markets are all down, and since we didn’t get anything to rally on, my suspicion is we are going down. Yesterday, we had a great day with DRV, taking home 4% on it. We got in at 14.00 and sold it at 14.56. Our Short Sale of the Day was PVTB, which we were never able to take action on because it never hit our entry range.

I have one trade for you now, and I will have an Overnight Trade for you later on in the day…

Short Sale of the Day: MGIC Investment Corp. (MTG)

Analysis: On a day like today, we want to find stocks that are either undervalued or overvalued. The market is not giving us a lot of signs, so we want to look for places where people will flock due to either the stock moving down way too much of moving up way too much. MGIC Investment is one of those companies that has taken a nice ride up in pre-market on some earnings data, but it is truly not fit for the 6% gain it is looking at currently.

The company did have a nice EPS beat with an EPS of -2.25 vs. the expected -3.35, but the numbers are nothing to be excited about in reality. For the company, it was its tenth straight quarterly loss. The company’s revenue was down 1%, and it actually widen its losses from one year ago. Without a significant tax benefit of $257 million, the company actually had an EPS of -4.49.

"The weak economy, higher unemployment and lower home prices have resulted in an increase in the delinquent inventory and elevated incurred losses," Chief Executive Curt Culver said in a statement.

I am just not sure why people are getting excited about these earnings. In reality, this mortgage broker has a long way up still, and it really has not turned any corners. It is overvalued, in the short run, and we want to take advantage of an expected pullback.

Technically, we are in good shape with our entry range. The stock will be nearing its upper bollinger band. Over the past month or so, the stock has moved up nearly 20%. It is overbought in the long run, but the stock does have some buyers on the sideline. For that reason, we adjusted up the entry range to take into account some quick buying, but I think once the reality of these earnings hits, it will not be a big buy.

Get in early and enjoy the ride!

Entry: We are looking for an entry of 6.45 – 6.55 for a short sale.

Exit: We are looking to cover at 2-3% decrease.

Stop Buy: 3% on top of entry price.

Good Investing,

David Ristau